International Contagion Model Of Multi-equilibria Financial Risk

From the end of 20th century, more and more linkage in financial crisis accompanied with the globalization of economy and finance. Studying from the former financial crises (such as: Mexico crisis in 1994, Thailand Indonesia and South Korea crisis in1997, Russia crisis in 1998, and etc.), we find that it has three channels for similar economic structure countries or close economic relationship countries get infected from developing country. These channels are international trade channel, financial channel and investor prediction channel.Further studying from the recent sub-prime crisis in American, we find the effects of three channels are more obviously as in the case of developed country crisis. Especially America, which is also the distribution country for main international financial reserve currency, can use its monetary policy to get the other country been punished after crisis broke out. The fourth channel for financial contagion depicts as when crisis has been broke out in country B, investors in country A will lower their forecast for A's economic fundamentals for fear of the punishment policies from country B. This channel is called policy coordination channel.Starting from the recognition of phenomenon above, this paper deepens and extends the former financial contagion model developed by Paul Masson and Olivier Jeanne. This model based on the openness of capital account, illustrates and proves the fact that results for three usual channels on financial contagion from developed country will be more significant. The model has also proved the probability for policy coordination, and discussed the influence of capital account regulation to financial contagion. It shows that: intensifying or loosening regulation in one direction are all impractical; the optimal regulation policy should be compatible for the economic fundamentals and initial situation of capital control. At last, we use the recently domestic economic data testify the theory model. It shows that: Comparing with the former years, we have suffered the initial influence from sub-prime crisis in 2007. Taking into account of sufficient exchange reserve, good developing forecast and suitable capital account regulation, the probability for financial crisis also stay low in our country.The innovation points of thesis are: 1) Considering on the most recently international finance environment, we deepen and extend the multi-equilibria model for financial contagion; 2) illustrated and proved the reinforced contagion effects spread from developed country financial crisis; 3) analyzed the strategy choice of capital account regulation policy in process of other countries' financial crisis.This thesis contains six chapters: the first and second chapter is preface and related survey; the third chapter is developing the model of international transmission of financial crisis; the fourth chapter is empirical analysis; the fifth chapter is advices for prevention of financial crisis; the last chapter is ending.